Creator of Bitcoin Mining Schemes faces $12 Million

An American conman who ran a bogus bitcoin mining scheme has been ordered to pay a $12m (£9.2m) fine.

Homero Joshua Garza told investors he would use custom-built computers to mine the virtual currency on their behalf and share the proceeds.

In reality, said the US Securities and Exchange Commission, Garza did not own enough computers to generate the funds he promised investors.

The decision comes as the value of individual bitcoins hits $2,800.

No power

In its summary of the case, the SEC said Garza used the “lure of quick riches” to get people to invest. The way bitcoin operates means those who help to verify transactions, a practice known as mining, are occasionally rewarded with virtual coins.

Garza told investors in two separate schemes, GAW Miners and ZenMiner, that he had enough computer power to carry out sufficient mining to generate a lot of bitcoins.

In fact, said the SEC, he was running a fraudulent “ponzi” scheme which used cash from new investors to reward those who joined earlier.

“Most investors paid for a share of computing power that never existed,” said the SEC.

It said about 10,000 investors handed over more than $20m to Garza for the mining schemes. Few got back the money they invested, it added.

Both companies have now been shut down.

In 2014, when Garza was running the con from his home in Connecticut each bitcoin was worth about $450.

Garza is also facing a separate criminal trial for running the bogus schemes.